Brazilian government enacts tax break for tablet makers

updated 09:45 am EDT, Tue May 24, 2011

by MacNN Staff

Tax base sacrificed to lure Foxconn iPad assembly

Brazilian president Dilma Rousseff has signed a provisional measure exempting tablet makers from 9.25 percent in social security taxes, while also reducing the IPI industrial production tax from 15 to 3 percent, according to Forbes. The burden on government funding is being accepted to attract Foxconn, the Taiwan-based manufacturer which is preparing to invest $12 billion in S?o Paulo facilities to assemble Apple products for both local and international markets, with an emphasis on the Americas. Tax breaks were one of several demands from Foxconn before it would expand operations in Brazil.

Folha de S?o Paulo reports that 12 companies have already registered to start producing tablets. A local firm, Multilaser, says it is planning to build a domestic tablet costing less than R$800 ($496). Local production may be extremely important to tablet sales in Brazil, as the hardware is normally heavily taxed on import, pushing prices close to $1,000 in some cases. Even devices that are partly assembled locally often require parts from Asia.

Brazil's finance minister, Guido Mantega, claims that tablets will cost at least 36 percent less under new rules. The government must also create a new definition of what represents a Brazilian-made tablet, however, in order to actually carry out tax breaks.

Based on the tablet focus of the new measure, Foxconn's primary Brazilian output for Apple should be iPads. The company now faces special pressure because of an explosion at an iPad plant in Chengdu, China, which not only killed three people but will likely harm iPad shipments already under tight demand. Apple has also had to find alternate parts suppliers in some cases in the aftermath of March 11th's Japanese earthquake.

Except you apparently missed the part where they also tax imports on such goods to such an extent to make them unbuyable by the general public. So, this is the carrot to go along with that stick. The "We can't compete in this area, so we'll make sure no one can afford any imports of these products, then we'll lower taxes on the businesses to get them to make them here."

Maybe the US should do the same thing. Put 50% import taxes on all computers imported into the country, thus making that $2000 MBP a $3000 MBP. Then Apple will have more incentive to build them here in the US!

Brilliant move, Foxconn and Apple. Brazil has a mercantilist trade policy that taxes the daylights out of imported electronics. So what does the dynamic duo do? They reward Brazil by promising to build a $12 billion factory there.

Did Apple/Foxconn first insist on a more open trade policy? Hardly. They merely tacked on the usual greedy corporate move, an insistence on receiving tax breaks that others do not get. Foxconn/Apple's huge new factory will be imposing all sorts of additional burdens on the city of Sao Paulo: water, sewerage, busing, police, schools etc. But it won't be paying the taxes to cover their costs. No, not Foxconn and not Apple.That's not their way. Both are international and cosmopolitan, which means they give not a whit about what they do to particular localities.

First-grade economics would be sufficient to tell the members of Foxconn and Apple's corporate suites that the taxes they evade will have to be paid by someone. In this case, they'll be paid by struggling little mom-and-pop groceries that don't get those tax breaks, as well as added taxes on the factory's own ill-paid employees.

Of course, in the end, greed like this is always stupid and self-destructive. What's to keep other countries from making the same move? If I were in government anywhere in Latin American, I'd slam the same import duties on Apple's popular products as Brazil and tell Foxconn, "Now you have to build a factory here."

Heck, if I were in U.S. politics, I'd note our unemployment rate along with our shut-down factories in the Midwest Rust Belt and find myself a bully pulpit. Every week, I'd bash at least one Silicon Valley giant for its sins. Google and Cisco would get slammed for for aiding repressive governments such as China. Apple would be targeted for its exploitive and dangerous manufacturing practices.

It'd be great fun, not least of all because these high-tech billionaires really are what Theodore Roosevelt aptly termed the "malefactors of great wealth." Behind their plush homes and private jets lie hundreds of thousands of tired, lonely, overworked teenage girls in China who're condemned to sort of mind-numbing, assembly line labor we saw in this country in Ford factories a century ago.

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